- USD/JPY has been consolidating above the 200-D SMA.
- Trump and Kim’s summit overnight, resulting in the signing of a “very important document”
- On the wide, the 112.30’s, (Fibos at 112.22/33) remain key upside target.
- Plenty to watch out for this week.
USD/JPY has been consolidating above the 200-D SMA, (located at 110.19), which has been a pinnacle point for the major cross since mid-May where bulls first managed a daily close above it, (14th May). It has only been able to close above there once this month so far as we head into central bank territory with the BoJ, FOMC and ECB all on the cards this week.
There has been plenty to watch out for this week so far, from economic data such as US CPI coming bang in line today for a Fed rate hike to geopolitical events such as Trump and Kim’s summit overnight, resulting in the signing a “very important document” on denuclearization should = risk on!).
However, markets are not responding quite as they might and there is an air of ‘quite before the storm’ while it appears that the central banks are going to be the dominant theme. For example, the yen softened after this historical meeting between Trump and Kim, but not by much, perhaps because the markets are not convinced that Kim is going to behave, (it was reported that he was out the night before the summit at Singapore Casinos). But on a more serious note, there is no telling of where the nuclear devices are stored, so the denuclearization of North Korea will be very hard to reconcile and this is not something that can be implemented overnight – as Trump said, this is the start of a ‘process’, one which could be long in the tooth and could take years to resolve.
Moreover, many other uncertainties persist:
“These refer not just to what ‘denuclearisation’ means for N. Korea but what the implications are for security for nations such as S.Korea and Japan. Also, it is unclear what implications there are for China-US relations going forward,”
analysts at Rabobank argued.
Markets may pay more attention to the summit between China and N.Korea, as there are implications for the South China Sea, Japan and S.Korea, depending on what the agreement is between the US and N.Korea. Tensions have been rising in recent years with respect to China’s presence in the S. China Sea. “In a broader context, the Japan’s appear to refer to the risk that Trump could make concessions to North Korea that would bring a retreat of the US military presence in the region, leaving countries such as S. Korea and Japan potentially more exposed China’s growing power. Last week Reuters reported a source from Abe’s policy circle stating that “The big picture is that any withdrawal of U.S. forces from the peninsula would benefit China,”” the analysts at Rabobank explained.
All in all, the summit has raised more questions than answers, and hence why the yen has not been sold off into oblivion ahead of the FOMC, ECB and BoJ. In the near-term, the dominant tone is bearish n the yen which is likely to be welcomed by the BoJ.
USD/JPY levels
Further daily closes above 200-D SMA are required to open up risk towards May’s 111.39 peaks. 111.50 as an option barrier is just above the 110.39 May high in a congested area where the 161.8% of May low & 76.4% of May drop is located. On the wide, the 112.30’s, (Fibos at 112.22/33) remain key upside target. On the downside, on a close below the Tenkan prop at 109.19, bears can look to the 55-DMA & daily cloud top around 108.60. 108.05, (100-D SMA), guards a run towards the mid-107.00s with the 2018 low at 104.56 in focus on the downside.
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